MATH10951 - 2011/2012

 

Specification

Aims

Provide an introduction to simple financial transactions as used in actuarial science and the mathematics involved.

Brief Description of the unit

This unit explores various simple financial topics from a mathematical point of view.

Learning Outcomes

On successful completion of this module students will be able to

• Retain knowledge and demonstrate understanding of the topics in this course unit. In particular :
  To understand the differences between simple and compound interest and between the force of interest and the nominal rate of interest.
  To be familiar with the terms involved in a general cashflow model and how these apply to other simple financial schemes.
• Carry out routine calculations involving the topics in this course unit. In particular :
  To carry out calculations involving loans and other transactions taking into account different definitions of the interest rate, interest applied on various time-scales and situations where discount rather than interest applies.
• Have the basic knowledge and a set of tools and methods that can be used
  · in subsequent course units,
  · (together with MATH20951) to gain exemption from the Actuarial Profession CT1 examination,
  · In a career involving mathematical and/or actuarial topics.

Future topics requiring this course unit

MATH20951, MATH20962, MATH39522.

Syllabus

1. Brief reminder of underlying mathematics. Geometric Series and Sum, derivatives and integrals, Maclaurin Series for exponential.
2. Brief introduction to role of finance in actuarial science
3. Generalised cashflow model. Inflow and outflow. Examples of simple models
4. Simple and compound interest and discount. The time value of money
5. Interest Rates. The force of interest and nominal rate of interest. Compound interest applied at various time intervals
6. Real and Money interest rates
7. The value of a cashflow at a given time
8. Nomenclature for compound interest functions as applied to annuities certain, deferred annuities and varying annuities
9. Equations of Value
10. Loan Schedules. Calculating Repayments. Flat Rates and APRs

Textbooks

• Core Reading : Subject CT1, Financial Mathematics. Produced by the Actuarial Profession
• JJ McCutcheon and WF Scott, An Introduction to the Mathematics of Finance, Heinemann, 1986

Teaching and learning methods

Two lectures and one examples class each week.

Assessment

Two coursework assignments; Weighting within unit 10% each

Two hour end of semester examination; Weighting within unit 80%

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Arrangements